Trade

Globalization-related issues.

No Fast Track in Lame Duck

The Hill
There is a strong link between trade promotion authority and the chance for positive outcomes for a number of major trade deals, says Stephen Ezell.

Trade Promotion Authority: Do We Need a New Approach?

October 29, 2014 - 9:00am - 11:00am
Arent Fox LLP
1717 K Street, NW
Auditorium
Washington
DC
20036

Trade Promotion Authority (TPA), a law that allows the President to “fast-track” trade agreements for approval or disapproval by Congress by only allowing a “yes or no” vote, is a contentious issue. Read more »

Trade Promotion Authority A Vital Component of U.S. Trade Policy

October 29, 2014
| Blogs & Op-eds

Trade Promotion Authority (TPA) is an essential component of U.S. trade policy, for several reasons. First, passing TPA legislation sends a clear and unmistakable signal that both Congress and the Administration take seriously the need for strong American leadership in crafting a successful global trade system going forward. Second, TPA helps make the high-standard trade agreements that America’s trade negotiators are currently negotiating, such as the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP), better. The third reason is that TPA supports U.S. exports, which supports American jobs and American economic growth.

Digital Drag: Ranking 125 Nations on Taxes and Tariffs on ICT Goods and Services

October 24, 2014
| Reports

Information and communications technology (ICT) drives productivity growth in the developed and developing world alike. Yet despite the clear benefits, many nations discourage ICT adoption by businesses and consumers by imposing discriminatory tariffs and taxes on cell phones, computers, telecommunications services and an array of additional ICT goods and services in the vain hope of increasing government revenues and/or protecting domestic ICT producers. Of 125 nations examined in this report, 31 impose combined ICT tax and tariff rates of over 5 percent of product or service costs, with several countries adding more than 20 percent to costs. Another 40 countries impose taxes and tariffs of between 1 and 5 percent. Economic studies demonstrate that these added costs limit ICT adoption which slows productivity growth. This report examines ICT tax and tariff policies around the world, assesses the negative impact of these policies on ICT adoption and productivity growth and recommends that nations eliminate all tariffs and discriminatory taxes on ICT goods and services.

Countries add taxes and tariffs to a range of consumer ICT products and services, including mobile phones and plans, computers and broadband service, and other electronics products. While 68 nations add at least 1 percent to the cost of ICT goods and services, Bangladesh imposes the highest costs, adding 57.8 percent to the cost of ICT goods and services over and above the country’s universal 15 percent VAT. In second and third place are Turkey and the Republic of the Congo, which add 26.1 percent and 23.8 percent, respectively. Greece, the only member of the OECD to rank in the top 20 countries, imposes 9.6 percent added ICT costs. Chile, only other OECD country in the top 50, adds 4 percent to costs. The majority of the countries that impose high costs are lower- or middle-income countries located in Africa, South Asia, and South America.

Many of the same countries that have imposed significant costs on consumer ICT products have also enacted high taxes and tariffs on business-use ICT products and services such as office equipment and intermediate ICT parts as well as mobile phones and computers. Forty-six nations impose a total cost on business purchases of ICT goods and services of more than 5 percent. Fully one half of the top 50 countries for business-use ICT tax and tariff rates are from Sub-Saharan Africa, with 11 countries from Latin America and the Caribbean and the rest from other regions. While there are many similarities between consumer-use and business-use ICT taxes and tariffs, tariffs comprise a much larger percentage of total business ICT cost additions than taxes among top countries.

The scholarly economic evidence is clear that because discriminatory taxes and tariffs raise costs for ICT users, whether businesses or consumers, they lead to reduced ICT adoption. The report estimates that these taxes and tariffs result in substantial decreases in adoption: over 20 percent for Bangladesh, Brazil, and the Republic of the Congo; between 10 percent and 20 percent for 11 more countries including Argentina, Pakistan, Ecuador, and Turkey; and between 5 percent and 10 percent for another 18 countries.

Because of reduced ICT adoption, economic growth suffers. For example, for every $1 of tariffs imposed on imported ICT products, India suffered an economic loss of $1.30 because of lower productivity. Overall, estimates point to yearly growth reductions between 0.7 percentage points and  2.3 percentage points of GDP per capita for countries with the highest tax and tariff rates.

Nations impose discriminatory taxes and tariffs on ICT goods and services for a variety of reasons, including the fact that they are relatively easy to tax and are seen as luxury goods. But because ICT taxes and tariffs limit growth, the net revenue benefits from taxing ICT goods and services are usually short lived. Studies indicate that revenue gains from such taxes and tariffs are often cancelled out over time because of reduced economic growth. For example, a recent study estimates that countries that reduce taxes on mobile goods and services regain revenue levels due to added sales and growth within 2 to 6 years.

Governments also enact tariffs on ICT goods in the mostly vain belief that it will spur domestic ICT production. But studies find that in most instances all these tariffs do is raise costs for other ICT-using industries, making them less productive and competitive, while doing little to spur the growth of a domestic ICT goods sector.

Given these findings, the guiding principle for nations should be straightforward: eliminate discriminatory taxes and tariffs on ICT goods and services for either consumers or businesses. This does not necessarily mean that ICT goods and services should be tax free—although some countries have happily begun moving in this direction—just that they should be taxed no higher than other goods and services. However, ICT goods should be tariff free since these are by definition always discriminatory. Finally, nations should also move to eliminate non-tariff barriers to trade that serve to raise the price of ICTs, such as domestic preferences for ICT procurement, local data storage requirements, and other protectionist measures.

A clear way for nations to enable faster economic growth is to spur the use of ICT by businesses and consumers. And many can do this with the stroke of a pen: eliminating discriminatory taxes and tariffs on ICT goods and services. 

Leaked TPP IP Chapter Much Ado About Nothing

October 24, 2014
| Blogs & Op-eds

Despite scandalous trumpeting by those who wish to sow fear, doubt, and uncertainty regarding the Trans-Pacific Partnership, “revelations” that have been claimed to be uncovered in a leaked version of the agreement’s IP chapter are either downright unfounded or significantly overblown.

Separating Fact from Fiction in the TPP

October 24, 2014
| Blogs & Op-eds

As the negotiators for the Trans Pacific Partnership convene in Australia this weekend, it would behoove them to take a moment to separate fact from fiction before discussing the agreement's intellectual property chapter. IP is integral to a growing share of industries in the TPP economies, from agriculture to information technology to biomedicine. Failure to recognize these facts within a trade deal as monumental and revolutionary as the TPP could be devastating for not only the participating countries but also for the prospects of continued global innovation writ large.

Trade Promotion Authority: Do We Need a New Approach?

Since 2010, the United States has accrued a $1.2 trillion deficit in trade with China.

Mercantilism is spreading in part because some mercantilist practices actually do work and help these countries—at least in the short term. China’s mercantilist practices have clearly been the principal factor in enabling it to generate enormous trade surpluses. For example, China’s share of world exports jumped from 7 percent to 10 percent between 2006 and 2010. As a result,the Beijing Consensus threatens to replace the Washington Consensus as the guiding star of other nations around the globe seeking to develop. Read more »

Trade Policy Manichaeism – Why the Trade Debate is Stuck and How to Move it Forward

October 13, 2014
| Blogs & Op-eds

Both sides of the trade debate are headed toward dead ends. It's time to acknowledge some fundamental truths about trade and globalization if we want to truly address the challenges we face.

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